Behind closed doors: The magic of unsourcing

Get your smoke and mirrors ready. It's time to find new ways to conjure costs away as pressure grows on IT budgets, argues one of the UK's most experienced IT managers.

So we are all back from our summer holidays, thoroughly refreshed and ready for the fray. Only one problem: for many of us there is no fray, as we are squarely at the bleeding edge of a business downturn.

For the past three months we have had a steady stream of announcements of large-scale job losses in the hi-tech sector, while across the business world IT projects are beginning to be deferred, extended in timescale or quietly discarded.

As ever, the first thing to go is the "discretionary" spending on non-critical projects with the immediate consequence of a very, very sharp decline in the contract staff market. Demand for temporary staff went completely flat at Easter and shows no sign of recovery. Those of you in "permanent" employment may think that this is no bad thing, seeing contractors as overpaid and over-rated.

But my anxiety over the situation is not entirely founded on my self-interest as an interim IT director. The contract market is a strong performance indicator because it reflects the general vigour of IT activity. This is important for all of us - permies and freelancers alike.

A declining contract market is a warning signal that represents a broader trend towards scaling back investment in new systems. Doubtless, things will get better eventually but in the meantime there will be a number of casualties.

All this comes at a time when many of us are busy making the final adjustments to our business plans for the next financial

"Unsourcing is all about migrating service activity from the IT department to customers, or suppliers, through the use of self-service functionality."

Colin Beveridge

year. The downturn will mean that we will face even more pressure than usual from our business paymasters to cut our costs.

"Do more next year, with less money, and make it better" is a familiar challenge for many of us. We pore endlessly over our budgets to find where we can eliminate a few thousands, here or there, to meet our targets. Sometimes these are challenging. Sometimes, though, our financial colleagues are not just ambitious with their cost-cutting goals, they are downright delirious.

A couple of years ago, my planning round started with an unequivocal requirement from a business unit customer to reduce IT costs by at least £5m the following year. They had been told to cut costs by their higher-ups and were now passing the problem on to me.

It took me a little time to convince my customer that I couldn't possibly carry the whole impact of their cost rationalisation by tweaking their IT budget. Luckily, the company had a very mature cost model for IT services, so I could demonstrate that the hoped-for cut would have meant me withdrawing all of my IT staff from the customer's account. All of the staff, not just a few of them, because a substantial part of the IT budget represented unavoidable, fixed, infrastructure costs for equipment and licences. Even if we had turned the lights off, these costs would persist through to the end of their contractual life.

The only way to reduce cost was to reduce service. This was not what the customer wanted to hear. Cost reductions without any impact whatsoever on service levels was what they expected. Surprise, surprise.

After years of refinement, our service functions are becoming leaner and meaner with little scope for further cutting. This means that the 2002 budget will be extremely tough for us all.

The spectre of outsourcing may well be looming large in the shadows around many data centres, now that it is more of a buyers' market. We looked at the issues of outsourcing, insourcing and IT organisation a few months ago in "Behind Closed Doors"
. Then things were not quite so bleak so we could focus on how we delivered services to our customers in the most effective way.

We are all familiar with the business practice of outsourcing - contracting out service delivery to specialist providers. Some of us also use insourcing - bringing external staff into our departments. However, both outsourcing and insourcing are predicated on the continuing need to deliver a service.

Today, to reduce my operating costs, the only sort of sourcing I am pursuing is unsourcing
. If you're not familiar with the term, unsourcing is all about migrating service activity from the IT department to customers, or suppliers, through the use of self-service functionality.

The outside world offers many mature examples of unsourcing in practice. Most high-street banks are past masters. How many of us still pay expensive bank charges when we execute many of their transactions ourselves, using self-service facilities online? Supermarkets with customer product scanners are another example of unsourcing, the customer does the work and still pays a premium for the privilege of not receiving service. Other business processes are being developed that unsource activity, moving administrative tasks back down the value chain to suppliers.

I am a great believer in adopting "outside world" business principles for internal use, because IT is best run as a business within a business
. In the outside world, technology facilitates unsourcing and most of us have easy access to this technology, especially Web technology. Now is the time to use it for our own benefit, to drive down our costs by converting as many of our service processes as possible to "self-service" functions.

In the past ten years I haven't seen any IT department that would not have benefited from some unsourcing. We all have some administrative functions that gain little added value from our manual intervention. Very often inertia is the primary business driver for their persistence.

"If it ain't broke, don't fix it" may well be a sound maxim in times when we are overwhelmed with new business requirements. But when things are a bit quieter, as they are now, we should take time to look at our internal processes and see if we can spot any opportunities for unsourcing.

Of course, the secret of successful unsourcing is to do it without the recipient realising that you have done it to them. That shouldn't be a problem for those of us who have built a large part of our careers on the judicious use of smoke and mirrors.

What's your magic formula on costs? Have you found new ways to cut costs or move them off your budget? We want to hear about your experiences and ideas.
Let us know with an e-mail.

Colin Beveridge is an interim executive who has held top-level roles in IT strategy, development, services and support. He has held posts at a number of leading corporations, including Shell, British Petroleum, ICI, DHL and PowerGen.

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